meltdown75
Lifer
- Nov 17, 2004
- 37,548
- 7
- 81
Millions of people around the world do. It's just that most don't understand options.
But you must understand options to understand why he made so much money on this trade.
He bought Jan 2006 calls. MEANING. Those calls would have expired this Friday (options expire the 3rd Friday of every month).
If this company had delayed the announcement of their takeover bid a week, he wouldn't have made a dime because the options would have expired Friday (of this week).
Options become less and less valuable as time goes on because they get closer to their expiration date.
If you own an options contract let's say at 50 (target price, also known as strike) and the stock is trading at 40, the contract is worthless, and each day that goes buy and that stock does not head towards 50+, the less the options contract is worth because each day that goes buy is one less day that contract has to move to it's strike price.
Most options expire worthless. But the few that hit their strike prices rocket up in value significantly.
Doh you're right... Not thinking this morning. Was thinking of the other end of the option.
Viper GTS
Ok how do I start doing this? I'd risk pissing 500 dollars with the benefit of possibly gaining $5000
plese give me more reading material on the subject. i'm doing this.
You might have been thinking of selling naked puts where you can expose yourself to tremendous risk.
how do you find out what contracts are what? Who decides this strike price?
say stock x today is selling for 55 and feb contract is 58 what would termine if the shares are .05 each or .50 each or whatever. Where does the .05 number come from.
It's harder than it looks. Odds are you will lose $500 10 times before you make $5000.
But the very smart trader can make a ton.
The .05 is the market price. You decide it, just like a stock.
The .05 is the market value of the contract.
The strike prices are set. You can look them up of any company on a site like Yahoo Finance.
Here is an example for Microsoft: http://finance.yahoo.com/q/op?s=MSFT
Calls imply you want the stock to go up, Puts are when you want the stock to go down.
Options are very complicated to the noob, takes a lot to understand how it all works. Spend a long time studying and following them and once you've mastered it, you can make quite a bit of money.
No one ever get got rich playing poker. Rich as in, "more money than you could ever spend." And I could spend hundreds of millions.
Those $5 million dollar tourney wins on TV are chump change compared to the futures market.
A few loonies I've came across use astrology to predict stocks and options but they're usually the dumbest of the dumb and they rarely consistantly make money.
They usually mix the astrology with smart trading strategies and when they make a profit, they blame the astrology not the trading strategy they put in place. :roll:
Ok lets take that link you posted for example. I click on february and I see the 30.00 strike is worth .05 . So I do what the OP did I buy in on the call for $500.00 . If the Feb 16 rolls around(day before contract expires) and microsoft hits 30.00 bucks what do I get?
- Oct 28, 1999
- 62,484
- 8,345
- 126
Options are messy. And can get expensive fast depending on premiums that you are paying.
The basic positions are long options - long call and long put. With a long call you are buying the right to buy a stock at a specified price. You could buy an XYZ Call at a $50 strike price in hopes that the stock goes above $50. If it does, you have the right to buy the stock at $50 and then sell it for whatever it is going for in the open market. Because of all the buying & selling in this situation your commissions and fees can get pretty high. You also have the option of of just selling to close your option position at the going rate if there is any value in it.
The long put is the opposite - it grants you the right to sell stock at a specified price. You buy a put at a strike price of $50 and you hope the stock goes down below $50. If it does, your option goes in the money and has value in it. You can exercise it and make money off of the position. Or you can sell it to close like you did with the call.
The opposite of long is short positions, basically with these you are giving someone else the right to exercise the option for the price of the option premium. Basically somebody else pays you for rights that you have to make good on if the stock goes in their favor.
If you sell a call, you would receive a premium and you hope that the stock tanks so that the person you sold that call to won't exercise it.
If you sell a put you hope the stock goes through the roof so that the person you sold the right to won't exercise it.
Going short on positions is a way to boost your portfolio income at the risk of serious exposure.
Then there are combos with options like doing covered calls - this is where you own the underlaying security and can protect yourself from serious risk because you own the stock and won't have to front the cash to make good on the option if it exercised against you.
And then you get into the really messy side of things and start doing straddles and combos and iron butterfly's and the multi-legged option positions.
You really, really have to understand what a stocks has to do for your option to be worthwhile before you think about doing options. You can loose money very, very fast with them.
If you buy a call - most you are out is the premium you paid for the option
If you buy a put - most you are out is the premium you paid for the option
If you sell a call - you can be out a virtually infinite amount of money (stocks have no theoretical max value you can hit)
If you sell a put - the max you can be out is the difference between 0 and the current value (if it's at 50 and it drops to 0, you are out $50 per stock, per contract)
Options are a way of leveraging - each contract is good for 100 shares. If you go short and the stock goes against you by $5, you are actually out $500. If you bought 10 contracts and it goes against you by $5, you are out $5000.
The basic positions are long options - long call and long put. With a long call you are buying the right to buy a stock at a specified price. You could buy an XYZ Call at a $50 strike price in hopes that the stock goes above $50. If it does, you have the right to buy the stock at $50 and then sell it for whatever it is going for in the open market. Because of all the buying & selling in this situation your commissions and fees can get pretty high. You also have the option of of just selling to close your option position at the going rate if there is any value in it.
The long put is the opposite - it grants you the right to sell stock at a specified price. You buy a put at a strike price of $50 and you hope the stock goes down below $50. If it does, your option goes in the money and has value in it. You can exercise it and make money off of the position. Or you can sell it to close like you did with the call.
The opposite of long is short positions, basically with these you are giving someone else the right to exercise the option for the price of the option premium. Basically somebody else pays you for rights that you have to make good on if the stock goes in their favor.
If you sell a call, you would receive a premium and you hope that the stock tanks so that the person you sold that call to won't exercise it.
If you sell a put you hope the stock goes through the roof so that the person you sold the right to won't exercise it.
Going short on positions is a way to boost your portfolio income at the risk of serious exposure.
Then there are combos with options like doing covered calls - this is where you own the underlaying security and can protect yourself from serious risk because you own the stock and won't have to front the cash to make good on the option if it exercised against you.
And then you get into the really messy side of things and start doing straddles and combos and iron butterfly's and the multi-legged option positions.
You really, really have to understand what a stocks has to do for your option to be worthwhile before you think about doing options. You can loose money very, very fast with them.
If you buy a call - most you are out is the premium you paid for the option
If you buy a put - most you are out is the premium you paid for the option
If you sell a call - you can be out a virtually infinite amount of money (stocks have no theoretical max value you can hit)
If you sell a put - the max you can be out is the difference between 0 and the current value (if it's at 50 and it drops to 0, you are out $50 per stock, per contract)
Options are a way of leveraging - each contract is good for 100 shares. If you go short and the stock goes against you by $5, you are actually out $500. If you bought 10 contracts and it goes against you by $5, you are out $5000.
The contract will rocket up in value and you'll sell it. You'd probably turn $500 into $10,000 like the OP did.
Or you could take delivery of the contract, meaning the writer of the contract MUST sell you his shares at $30 a share, NO MATTER what the stock is currently trading at. So if the stock is at $35, you execute the contracts and turn around and sell them for a $5 profit.
But most options are sold out, not executed.
You lose your $500.
[EDIT]This is assuming it is at exactly $30, in which case nobody is going to pay you anything for the right to buy at $30. If it goes OVER $30 (as JLGatsby assumed) then you would make serious money.[/EDIT]
Viper GTS
what online brokerage firm would your recommend for this if I want to test teh waters at somepoint.
The Feb 06 25 for BSX aren't bad if you think GDT is going to turn down BSX's offer. BSX should pop up to back above $25 if that were the case and you'd definately be in the money.
Keep in mind, I've only been following this from the periphery, and don't know all the details of the deal.
Keep in mind, I've only been following this from the periphery, and don't know all the details of the deal.
Any brokerage will do. I don't trade options, only stocks, but I use Ameritrade. Ameritrade also offers options trading and they're one of the biggest.
I would recommend gigapet read a book on options and read msg boards, etc. before he invests in options. I don't want to be the reason you lost $1000.
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